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Bayer and Monsanto will have to extend the deadline on their merger agreement while
they navigate antitrust clearance in roughly 30 countries. The biggest, most important
markets for the agrochemical giants — the EU, U.S., Brazil, and India among them —
haven’t cleared the deal.

Still, Monsanto and Bayer show no signs of veering from their intention to merge,
Bloomberg analyst Brooke Sutherland told Bloomberg BNA. Bayer-Monsanto is unlike previous
delayed mega-mergers, such as Halliburton Co.'s failed attempt to purchase Baker Hughes,
that began to unravel while the parties waited for regulatory clearance. In this case,
the motivation to close Bayer-Monsanto remains strong, and Monsanto remains highly
attractive to Bayer, she said.

But the parties won’t have the approvals they need in hand this week. Both the size
of the deal and concentration in seed and pesticide markets have prompted protracted
antitrust review and some argue the deal should be blocked because the combined company
will raise prices to farmers.

The EU is conducting an in-depth investigation into the merger, and its current deadline
to complete that review is Jan. 8, 2018. The EU’s competition commission also received
over 50,000 petitions about the Bayer-Monsanto merger, an occurrence unusual enough
to be mentioned in the commission’s announcement of it’s long-term investigation.

The deal isn’t dead if it doesn’t close this week. The Bayer-Monsanto merger agreement
provides that the parties can extend the contractual deadline to June 14, 2018, if
needed, to finish gathering regulatory approvals.

Lumbering Giant

The sheer size of the combined entity poses problems for antitrust clearance. According
to a
Bloomberg BNA analysis, the transaction failure rate for deals above $10 billion (34.9 percent) is more
than twice as high as the failure rate for deals between $1 billion and $10 billion
(14.8 percent).

The EU pointed to the size of the deal as a concern. “The proposed acquisition of
Monsanto (U.S.) by Bayer (Germany) would create the world’s largest integrated pesticides
and seeds company,” the EU’s competition commission said in announcing its investigation
into the deal. “It would combine two competitors with leading portfolios in non-selective
herbicides, seeds and traits, and digital agriculture.”

The merger also would take place “in industries that are already globally concentrated,”
the commission noted, in particular by the recent mergers of Dow-DuPont and Syngenta-ChemChina.
The EU required substantial divestitures in those two mergers before they cleared.

Problem Markets?

However, scale is less important than overlaps between the two businesses to antitrust
regulators, Sutherland told Bloomberg BNA. Bayer-Monsanto has fewer traditional antitrust
problems than the Dow-DuPont and Syngenta-ChemChina deals because Bayer and Monsanto
directly compete in fewer markets, she said.

Market conditions have only strengthened the underlying logic for completing the transaction.
With Dow-Dupont and Syngenta-ChemChina already closed, it is even more important to
Bayer and Monsanto to have the scale to compete effectively, Sutherland said.

But plant traits, seeds, and herbicides also may be problem markets in the U.S., according
to Maurice Stucke, University of Tennessee College of Law professor and counsel at
the Konkurrenz Group. He recommended in a July
white paper, co-written with his Konkurrenz colleague Allen Grunes, that U.S. antitrust authorities
block the deal.

Monsanto is big in transgenic seeds, which now make up over 90 percent of all corn,
cotton, and soybeans planted in the U.S, the white paper said. Those three crops,
in turn, occupy around half of all U.S. cropland. Among the remaining suppliers of
transgenic seeds, Monsanto stands out as the market leader. The merger would reduce
the “big six” seed vendors to four, and the resulting increased prices would require
a U.S. antitrust challenge, Stucke and Grunes argue.

Stucke and Grunes also see research and development markets as a potential problem
for the Bayer-Monsanto deal, which are a likely focus in the EU. The Dow-DuPont tie-up
overcame innovation market concerns in the EU by selling much of its R&D operations.
Monsanto and Bayer may be able to satisfy the EU with similar divestitures, Sutherland
said. Alternatively, Monsanto and Bayer could convince authorities that their combined
company will be better suited to innovate than the separate parties currently are.

Getting the Deal Done

Bayer and Monsanto aren’t giving up, Sutherland told Bloomberg BNA. She pointed to
Bayer’s continued work on divesting Covestro AG as evidence that the company is working
toward closing with Monsanto. Bayer announced on Sept. 12 that it has further reduced
its stake in subsidiary plastics and chemicals subsidiary Covestro, a planned divestiture
to help with financing the Monsanto purchase.

“As already announced, Bayer intends to achieve full separation from Covestro in the
medium term,” the company said in announcing the sale.

To contact the reporter on this story: Eleanor Tyler in Washington at
etyler@bna.com

To contact the editor responsible for this story: Fawn Johnson at
fjohnson@bna.com

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